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Student Loan Watchdogs Say Repayment Scams Could Get Worse03:45
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A lot of people have student debt. According to the Pew Research Center, about 16 percent of all U.S. adults say they owe money on a college loan. It's a total that tops $1.5 trillion. That’s a large market — and for scammers, that means opportunity.

You can’t declare bankruptcy to get relief from student loans like you can with most other debt. And that puts borrowers in a vulnerable position.

Borrowers like Amelia Manni. She went to Boston University and says her scam drama began with a phone call. One that sounded pretty official.

"This company said they were reaching out on behalf of where I got my loans from," Manni said. "They knew where I went to school, what I majored in in school."

A screenshot of a sample deceptive student debt relief ad (Courtesy of the Federal Trade Commission)
A screenshot of a sample deceptive student debt relief ad (Courtesy of the Federal Trade Commission)

The person on the line promised everything she needed, including lower monthly payments and a lower interest rate.

"They said that they were going to be collecting the payments, and then would be putting them toward the loans," Manni said.

But that never happened. After a few months and more than $1,500 in payments, Manni’s loan servicer told her that money was nowhere to be found. For help, Manni called the Massachusetts attorney general’s office, who managed to get her money back.

"Unfortunately, we’ve just seen these companies time and time again market to students, purport to help them, and instead these students are left with boatloads of additional debt," said Attorney General Maura Healey.

She explained some companies flat-out steal borrower money. Others just skirt the law. But their reach has been significant. After an 11 state law enforcement crackdown led by the Federal Trade Commission in 2017 the agency estimates deceptive repayment schemes have defrauded federal student loan borrowers out of at least $95 million in illegal upfront fees alone.

But catching any of these offenders and stopping them isn’t easy. Many have been known to shut down in one state only to open back up in another.

Because Healey’s office got so many calls about the issue, they created a special Student Loan Assistance Unit. Since opening in 2015, it has successfully sued five companies. Still, Healey says the problem continues. The number of written complaints they’ve received has doubled in the last three years.

"I think this has been a growing problem and it’s been made worse by the DeVos administration over the last few years," added Healey.

The U.S. Department of Education hasn’t provided a response on this story yet, but in the past, the agency has said its proposals on federal student loan forgiveness will make the system more fair for everyone — taxpayers, schools and students.

Still, education economists say scammers have a strong hold on the market because it’s hard for borrowers to find good advice.

Internet searches don’t do much to clear things up. Oftentimes, the government information sites and blogs with accurate information are listed below the private companies that have paid for ad space.

"For the consumer to understand what companies are legitimately providing help and which are the scam artists would be extremely difficult," added higher education economist Tolani Britton with the University of California, Berkeley.

And with default rates expected to rise over the next five years, she says scams will likely continue to vex borrowers for a long time.

This segment aired on August 22, 2018.

Related:

Carrie Jung Twitter Reporter, Edify
Carrie is a senior education reporter with Edify.

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